Governor Godwin Emefiele said a previous 150-basis-point rate increase in May had not permeated the economy enough to corral inflation, which came in at 18.6% in June, its highest in more than five years.
Nigeria faces double-digit inflation, low growth and mounting insecurity, including a wave of kidnappings. Meanwhile, the government is experiencing low revenues and large deficits, despite high oil prices.
Emefiele said all members of the 11-member monetary policy committee (MPC) voted at the latest meeting for rates to rise, although they differed over the size of the increase. Six MPC members, a majority, voted for a 100-basis-point increase.
"However the policy dilemma was hinged around the level of tightening needed to rein in inflation without dampening manufacturing output, which could result from the higher cost of borrowing," said Emefiele.
Emefiele said if inflation continued on an upward trajectory the bank would continue with its tightening policy.
Naira depreciation on the black market may continue to exert pressure on prices, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
The naira currency was quoted at a new record low on the black market of 625 to the U.S. dollar, after the rate decision was announced, traders said. It traded within a range of 415-430 on the official market.
"We think that in tightening now, the central bank is reacting both to current pressures, as well as potentially preparing the ground for eventual maybe post-election FX policy reforms," Khan said.
The state of Nigeria's economy has become a major issue for voters as the country heads for a national election in February, when incumbent President Muhammadu Buhari will step down.
(Writing by Alexander Winning; Editing by James Macharia Chege and Mark Heinrich)
By Chijioke Ohuocha and MacDonald Dzirutwe
